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CJFFICE CIF THE DIRECTOR
STATE CAPITOL ■ ROOM 1 145 ■ SACRAMENTO CA ■ 95B 14-499B ■ www. □□ F.CA,G □ V
April l 0, 2020 Honorable Holly Mitchell, Chair Joint Legislative Budget Committee Senate Budget and Fiscal Review Committee
Honorable Phil Ting, Chair Assembly Budget Committee
Honorable Anthony Portantino, Chair Senate Appropriations Committee
Honorable Lorena Gonzalez, Chair Assembly Appropriations Committee
COVID-19-lnterim Fiscal Update
As the Legislature assesses the extraordinary impacts of the COVID-19 pandemic on the state's fiscal condition, the Department of Finance provides the following interim fiscal update. Finance will continue to refine the information in this letter, as well as the state's revenue and expenditure estimates, as it develops the May Revision. Economic Forecast and Revenues
The need to implement stay-at-home measures in California to protect public health and safety, combined with the effects of the COVID-19 pandemic on the national and world economies, have dramatically affected the state's economy, The economic disruption from the pandemic is expected to result in a recession and have significant negative effects on state revenues; concurrently, the drop in the stock market may cause further revenue declines. This impact is expected to be immediate, affecting fiscal year 2019-20, and will continue in to fiscal year 2020-21 and additional years depending on the pace of recovery of local, state and national economies. To give some perspective, Finance modeled a moderate recession scenario for the Governor's Budget, when it was released in January of this year, in which unemployment was projected to peak at 9.1 percent in the second quarter of 2021, compared to 6.9 percent and 12.3 percent for the 2001 and 2009 recessions, respectively. Due to the scope of the COVID-19 pandemic, unemployment could peak at a level higher than the Great Recession. Expenditures
Fortunately, California begins this fiscal downturn in far better shape than in prior downturns because of our significant budget reserves and a cash cushion. Over the past several years, the state has paid off all of its past budgetary borrowing (the "wall of debt"), and has committed billions of dollars to paying down other liabilities. This, along with the maintenance of a structurally balanced budget in the last several years, has also made the state's fiscal condition more resilient.